Tue Aug 17, 2004

LONDON (Reuters) - Oil prices eased on Tuesday as fears of supply disruptions receded following a convincing referendum victory in Venezuela for President Hugo Chavez and after Russia's YUKOS said it had received a government assurance on September exports.

Worries about U.S. crude inventories, a continued disruption in Iraqi supplies and strong world fuel demand underpinned prices that remain $9 a barrel, 25 percent, higher than at the end of June.

U.S. light crude oil for September shed 15 cents to $45.90 a barrel after easing 50 cents on Monday. London Brent slipped 36 cents to $42.33 a barrel. Oil had set new all-time highs in all but one of the previous 12 trading sessions, peaking in Asia trade on Monday at $46.91 for U.S. crude.

"U.S. oil prices have already gone above $45 as we had predicted. Anything above that level is overbought and we could see a correction," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

"But prices could still hit $50 if there are sudden big events such as attacks on oil infrastructure in the Middle East."

In real terms, adjusted for inflation, oil prices are still well below 1980's peak of $80 a barrel, following the Iranian revolution. But average U.S. prices this year so far of $38 are approaching those of 1974, the first oil shock, when crude averaged an inflation-adjusted $43 during the Arab oil embargo.

Venezuelan leader Chavez easily won a Sunday referendum on his rule, raising hopes for an end to more than two years of confrontation with opposition leaders who organized a lengthy oil industry strike in late 2002 and early 2003.

While concerns linger about supplies from YUKOS, Russia's top oil producer, hopes are that its exports will escape disruption. On Monday, YUKOS chairman Viktor Gerashchenko told Reuters the company had been assured by the authorities it would be allowed to produce and sell oil at least until the end of September.

YUKOS is trying to fend off bankruptcy as bailiffs pursue payment of multi-billion-dollar tax arrears.

"If the perception is things will calm down in Russia and Venezuela, then the only thing that's left is Iraq," said Morgan Stanley analyst Irene Himona.

Brent crude could drop back below $40 a barrel as a result, Himona said. "It's gone up for no other reason than sentiment."

Oil traders remain edgy over the targeting of Iraq's oil infrastructure by Shi'ite militia fighting U.S. forces. Insurgents set fire to an oil well in southern Iraq on Monday. Iraqi oil exports have been running at 900,000 barrel per day, about half the normal rate, after saboteurs blew up a pipeline eight days ago.

OPEC power Saudi Arabia said on Monday it was pumping as much as possible to bring prices down to $25-$30 a barrel. Extra Saudi crude should help build oil inventories ahead of the peak winter demand season.

Attention is shifting to the U.S. Energy Information Administration inventory data for the week ended August 13, due to be published on Wednesday.

A Reuters survey of eight analysts forecasts a one-million barrel fall in commercial U.S. crude stocks. In the week to August 6 crude stocks fell 1.9 million barrels to 298.6 million. U.S. oil demand so far this year is running at a strong growth rate of 3.5 percent, despite high prices.

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